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What I learned today about SNCF and California HSR

If you’ve been following me on Twitter, you’ll know that I spent this afternoon on the phone with folks in California, looking into the recent SNCF-CHSRA bombshell. To summarize: SNCF, the highly experienced French national high-speed rail operator, apparently had a plan for California’s HSR network, but was turned off by the highly politicized routing. Namely, they wanted to make a straight shot from LA to San Francisco by running along the flat, government-owned I-5 corridor with spurs out to the eastern Central Valley, whereas the California High Speed Rail Authority (CHSRA) and state politicians wanted the main line to go through every little town in the Central Valley, directly. Now, all of this wouldn’t be a scandal, except for the fact that nobody at SNCF ever mentioned it to the public or the media.

That’s what the LA Times reported, but David Schonbrunn, a pro-HSR, anti-CHSRA activist, says there’s more to the story – SNCF not only advocated I-5, but they actually had private investors lined up!Here’s his letter to the LAT:

Your otherwise excellent story “High-speed rail officials rebuffed proposal from French railway” was far too kind to California High-Speed Rail Authority officials. At the time of its proposal, SNCF had the investment backing to actually build the LA-SF line, in a deal that sheltered the State from the risk of subsidizing an unprofitable project.

The Authority’s 2012 Business Plan covered up this offer, instead insisting that no private capital would be willing to invest until the first high-speed line showed a profit. The $6 billion Central Valley project approved last week by the Legislature thus exposes the State to unlimited operating losses. Worse yet, before that line can be completed, it will need an additional $27 billion from the federal government–quite unlikely in today’s political climate.

I’d sure like to understand the thinking behind the rejection of the French offer.

It’s unfortunate the story didn’t run earlier. It would have informed the Legislature’s debate.

I talked to David on the phone. He stuck by the story and said there was indeed a “secret meeting” between SNCF and CHSRA where such issues were discussed, and then I spoke to someone else – someone intimately knowledgeable about the SNCF side of things, who’s been quoted in the media before, but who requested anonymity – who confirmed David’s version of events. However, he said that CHSRA was so dismissive of SNCF’s plan that no formal proposal was ever requested or made, which tells me that there unfortunately may not be any written documents to request/FOIA from the CHSRA.

As to the identity of the private backers, my source wouldn’t go into specifics, but did hint that they were major, major US banks offering to fund the venture, and that they had experience funding SNCF projects in the past. But again, no formal proposal was ever made, since the CHSRA refused to consider the only alignment – I-5 – that private backers felt was financially viable. (When I pushed him on which banks offered to finance SNCF’s California plan, he downplayed the importance of the identify of the individual would-be investor, saying that it was a plan that would have had no problem attracting private capital, given SNCF’s past expertise and proven good judgment.)

Some have been dismissive of the LAT’s SNCF story because of a PDF leaked to Yonah Freemark in 2009 in which SNCF specifically gave its approval to the CHSRA’s more circuitous route following Highway 99 through Bakersfield, Fresno, etc. In response to this, my source said that that document was very preliminary and was intended only for the FRA, and was in fact drafted before SNCF established SNCF America. In other words, it was nothing close to their ultimate proposal, and the I-5 proposal that the LAT cites was the most recent and most serious one. (Indeed, it appears that SNCF America wasn’t created until 2010, a year after that PDF leaked, lending credence to my source’s claim that it was much more preliminary than the one cited yesterday by the LAT.)

So, what does all this mean? It means that the CHSRA very well might have been offered private funding for the plan, but turned it down because it didn’t fulfill desired political objectives of going through towns in the Central Valley onto the main trunk line (again: SNCF’s I-5 proposal would have connected Bakersfield, Fresno, etc., just through spurs rather than the main line, not on every single LA-SF trip). This would be okay if the CHSRA was public about it, but they stand accused – by the LAT and by David Schonbrunn – of covering it up. (Obviously it would also have been in Parsons Brinckerhoff’s interest to ditch the SNCF plan, and of course there are many people who have been employed both at PB and CHSRA.)

I’ve reached out to SNCF America for an official comment but my call wasn’t returned today (I’ll update if I hear later). I didn’t bother to try to contact CHSRA – if they wouldn’t talk to the LA Times about a well-sourced claim, I’m sure they won’t talk to some freelance reporter about anonymously sourced accusations appearing on blogs.

But I know for a fact that there are other reporters more experienced than I am on the case, and I’m sure it’s only a matter of time before the truth comes out. But so far, it ain’t lookin’ good for the CHSRA.

If you know more about any of this, even if it’s off the record, please don’t hesitate to contact me – smithsj@gmail.com, or +1-484-995-8479.

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I think the much more important point remains that political support for statewide HSR depended and continues to depend on the Central Valley cities. Additionally, there are no doubt several HSR operators and other private investors that have approached the authority with various proposals and are more likely to show interest now that public funding is committed. If we are trying to create a state-wide high speed rail network it makes far more sense to serve the millions of people (and growing) in the Central Valley. Trying to cut costs and increase speed a bit at the expense of millions of potential riders is typical short-sited thinking about infrastructure spending. Spinning the SNCF proposal into some kind of scandal feels akin to the recent right-wing which hunts like Solyndra and the Fast and Furious programs more than it does a constructive discussion about how to build the best rail system for the state.

Stephen Smith

First of all, let me reiterate: no plan leaves out the eastern Central Valley cities. The I-5 alignment that SNCF (and its private backers, apparently!) wanted would have included spurs to Bakersfield and Fresno. They would have been served, just not by every single train. So yes, I think it’s fair to say that it’s pretty scandalous that the CHSRA rejected the proposal without even making it public (which is what my sources are alleging).

As for “right-wing witchhunts,” my sources for this are not Reason Foundation folks, or anyone with right/libertarian-leaning politics (that I know of). Rather, they are all pro-HSR engineers.

Furthermore, with regards to Solyndra, this is a much bigger sum of money we’re talking about. Solyndra got half a billion in loans, and of the entire $36 billion in loan guarantees for renewable energy projects included in ARRA, it only accounted for 2% of the total. California HSR, on the other hand, is a $60+ billion project, of which critics are alleging that tens of billions will be misspent under the current plan.

It sounds like there wasn’t actually any proposal for them to reject, but rather SNCF bailed pretty early because of the vibes the CAHSR folks were sending.

And while I more or less would trust SNCF to have some good judgment, I’m skeptical about these mysterious “private backers.” Who know what expertise or priorities they had; it’s just as easy to imagine (and that’s all anybody is doing at this point) bankers who were determined to build something cheap at the expense of long term goals. I’m sure if SNCF was involved they’d do a good job of whatever the design eventually turned out to be, but I don’t really want bankers to have any input into planning.

bankers/investors want a return on their investment. politicians want a few extra votes.

whose incentives do you really think are more likely to lead to a sustainable rail line.

Andy Likuski

Spurring to the Central Valley creates the same type of problem as investing all of the initial funds in the bookends. By connecting LA to SF without the Central Valley, you leave a project incomplete that will never have the statewide political support needed to recommence. (That’s the same problem as funding only the bookends first–you’d need to start over the whole project to connect SF to LA.) Fundamentally though, why would you skip the Central Valley on the first pass in order to serve the unpopulated I5 corridor to save some money and travel time, and then go back and build hundreds of miles of high-speed rail track? Skipping the Central Valley initially also makes it much harder to serve Sacramento with HSR. The I-5 project would surely result in Sacramento and the Central Valley being limited to connecting AMTRAK service on freight-owned lines for decades to come.

I made no mention of economic comparisons to the right-wing “scandals”, but it’s fair to say that the LA Times line of attack feels very similar. I don’t think the scope of the HSR project somehow makes the SNCF proposal a legitimate scandal. That would presuppose that SNCF’s proposal, which has now been exposed to have had critical flaws (http://www.cahsrblog.com/2012/07/new-evidence-shows-flaws-in-sncf-plan-for-california-hsr), was the only hope to have a successful HSR project, which is clearly untrue. It’s important to be critical of costs and respond to smart suggestions to reduce costs, which the Authority has done. Let’s debate the legitimacy of the I5 proposal, given the legal, political, and ridership realities, not just the up-front cost savings it might deliver. There’s no good argument building infrastructure only based on up-front cost, without examining long-term-costs and benefits, both economic and social.

Miles Bader

I want neither to design the line … but however we look down on them, politicians are more accountable, and more likely to reflect what’s desirable to the public and state than bankers.

The goal is not profit, even if that’s desirable, and financing is a tool to achieve the goal. Bankers should be involved “somewhere down the line,” not in a leading role: in the end, they’ll have their say, but they certainly shouldn’t be allowed to drive the process.

awp

(There are some (unsourced, unnattributed, but not unlikely) comments on this issue elsewhere claiming that the private investors were wanting revenue guarantees, and other government protections. I have no strong doubts that this was not a truly free market offer, since corporatism is the leading ism of the day. If so, the point behind many of these arguments disappears.) ____ assuming that it is free market vs. public provision. ____ I want engineers to layout multiple preliminary proposed routes and associated projections, and then have people with their own money on the line decide on the route, and then have engineers design the routes. ___ I don’t know what you mean by more accountable. I think the individuals and institutions that are willing to put up their own money are going to be very accountable, to themselves and their investors, that the final value of the route is greater than the cost. On the other hand most Californians aren’t going to notice, or be able to attribute, their loss of five or ten dollars that the politicians take from them(by inflating the costs and deflating the value) to buy the votes of select constituencies. ____The goal is profit. “Profit” is just another way of saying that the value of the final good exceed the value of the inputs. In other words The goal is that the value of the final good exceed the value of the inputs by the largest amount possible. The question is how do we get that? ____Why shouldn’t individuals and institutions that are willing to put up their own resources forward, “drive the process”. Plus allowing the investors to build a line today with their own resources absolutely in no way prevents future lines.

EDG reppin’ LBC

” bankers/investors want a return on their investment”

True. Sometimes investors hope to get paid back by municipal bonds. When the investors realized the CA state gov’t wouldn’t be able to meet their bond obligations, they closed their briefcases, and walked away.

http://twitter.com/hamilt0n Michael Joseph

Great post, Stephen. This was really informative.

I have a few quibbles:

SNCF isn’t private. It is part of the French government.

Also, Fresno and Bakersfield are backwater cow towns. I don’t see how they can be part of any sensible design.

baklazhan

They may be “cow towns”, but they have populations of 500,000 and 350,000, and they don’t currently have great connections to the coast–it’s either an extremely expensive flight or a long and tedious drive or bus or Amtrak ride.

Maybe once they’re better-connected to the rest of California, they won’t be “cow towns” anymore.

http://twitter.com/hamilt0n Michael Joseph

Mr baklazhan raises the following question:

Should there be a break in the tracks at Bakersfield on the railroad from SF to LA?

He answers the question in the affirmative and offers a number of reasons, of which I propose to examine only this:

There should be a break in the railroad from LA to SF at Bakersfield; for, if goods and passengers are forced to stop at that city, this will be profitable for boatmen, porters, owners of hotels, etc. It may cease to be a cow town!

Here again we see clearly how the interests of those who perform services are given priority over the interests of the consumers.

But if Bakersfield has a right to profit from a break in the tracks, and if this profit is consistent with the public interest, then Fresno, Chowchilla, and, in fact, all the intermediate points, including Snelling, Lemoore, etc., etc., ought also to demand breaks in the tracks, on the ground of the general interest—in the interest, that is, of domestic industry—for the more there are of these breaks in the line, the greater will be the amount paid for storage, porters, and cartage at every point along the way. By this means, we shall end by having a railroad composed of a whole series of breaks in the tracks, i.e., a negative railroad. A complete sacrifice of the ends for the means.